Opportunities for African private equity

Local investors and private capital heavily courted

by Jean-Claude Bastos de Morais in Zurich

Tue 13 Jun 2017

Private capital is more important in Africa than it was 10 or even five years ago. The realignment of national budgets in response to oil and commodity price shocks is propelling further economic diversification in many African countries. The development of a commercially successful innovation framework is therefore key to achieving sustainable economic growth. This is opening new opportunities for private equity investors around the world.

A 2015 report from the World Bank states that more than 50% of small and medium-sized enterprises in Africa lack access to finance. In a market where four out of five formal jobs are with SMEs, the funding gap represents a clear and present danger to Africa's sustainability. Innovators create businesses that generate jobs and wealth. They are an important factor, and so too are the private equity investors who support them.

Private equity investors are welcomed as facilitators of infrastructure development and long-term economic diversification through key industrial sectors. Although foreign investors play a major role as well, African private equity investors should be steered towards innovators and small businesses that are developing solutions for issues confronting those on the continent.

African investors may be better suited to taking higher perceived risks than their foreign counterparts. The former can have a better understanding of how things work in practice in Africa and are more likely to appreciate the enormous scope of opportunity that many foreign investors may not be aware of. African investors may be more mindful of some of the innovations that are emerging, especially in agribusiness, healthcare and poverty alleviation. Furthermore, they may be more attentive to the long-term social impact of their investments, including job creation, economic diversification and social mobility.

Private capital is heavily courted, particularly in fast growing economies such as Nigeria, which has a proactive and highly pro-private enterprise economic strategy. In February 2016, the government of Nigeria-funded Office for ICT Innovation and Entrepreneurship launched a new programme called StartUP Friday, a curated meet-up for young businesses, investors and mentors. Young entrepreneurs can pitch their start-up ideas and network among potential investors, placing Nigeria in a unique position to nourish its own innovation system.

The Angolan government has opened its doors to co-investment opportunities with multinationals, enabling it to push ahead with large infrastructure and logistics projects. These include the Porto de Caio project, the nation's first deep-water port and public-private-partnership.

The agreed public-private partnership model provides for a 30-year concession where the state will finance the infrastructure covering 85% of capital expenditure and the remaining 15% will be financed by private investors. After 30 years, the port infrastructure will be transferred back to the state. The port will create up to 1,600 direct jobs for the operation of the port, creating potential for 30,000 indirect jobs. It is a working example of how private equity investors and governments can co-operate and deliver results to the benefit of the nation, while creating long-term returns for private investors.

African and foreign investors can take advantage of widespread opportunities to support significant government investments in priority target industries, including hospitality, technology, infrastructure, timber and healthcare. These are the direct recipients of government funding and as such are a clear priority. They offer premium long-terms gains for investors who wish to take a long-term view and want a more meaningful stake in Africa's future.

Jean-Claude Bastos de Morais is Founder and Chief Executive of Quantum Global Group.

This article appears in OMFIF's fourth annual Global Public Investor publication. Pre-order your copy of GPI 2017 here, and register to attend the launch on Wednesday 14 June in London here.